Oct. 31 (Bloomberg) -- Euro-area inflation cooled to the
slowest in almost four years in October, moving further away
from the European Central Bank’s goal.

The annual rate fell to 0.7 percent, the lowest since
November 2009, from 1.1 percent in September, the European
Union’s statistics office in Luxembourg said in a preliminary
estimate today. The median forecast in a Bloomberg News survey
of 42 economists was for the rate to stay at 1.1 percent.
Separate data today showed unemployment was at a record 12.2
percent in September.

The data mark the ninth straight month that the rate has
been less than the ECB’s 2 percent ceiling, and they prompted
BNP Paribas SA and JPMorgan Chase & Co. to forecast an interest-rate cut by the ECB in December. The central bank, which will
publish new economic projections that month, has said there is a
“subdued outlook” for inflation in the 17-nation euro area.

“Today’s numbers should strengthen the case for more
policy easing,” said Neville Hill, an economist at Credit
Suisse Group AG in London. “Draghi may want to leave the door
open to the possibility of a rate cut at the December meeting”
when he holds his monthly press conference next week, he said.

The ECB will probably keep its key interest rate at 0.5
percent after a meeting of its Governing Council on Nov. 7,
according to a Bloomberg survey of economists. The central bank
has pledged to keep the rate at the current level or lower for
an extended period.

Gradual Recovery

The last time inflation was this low, the euro area was
mired in a recession, companies were cutting costs and
unemployment was rising. The region’s economy shrank 4.4 percent
in 2009. While the economy resumed expansion in the second
quarter and surveys have improved, unemployment is continuing to
increase and the ECB predicts only a “gradual” recovery.

The ECB in September predicted inflation of 1.5 percent
this year and 1.3 percent in 2014. In his forecast change,
JPMorgan economist Greg Fuzesi said the data today raise “very
big” questions about the outlook and the ECB’s response.

Ken Wattret, chief euro-area economist at BNP in London,
said inflation is “persistently undershooting the ECB’s
definition of price stability, which risks unanchoring inflation
expectations on the downside.”

“The appreciation of the exchange rate is leading to an
inappropriate tightening of financial and monetary conditions in
the euro area,” he said.

The euro has strengthened about 4 percent against the
dollar since early September and about 2 percent on a trade-weighted basis. The currency weakened 0.9 percent against the
dollar today, to $1.3618 as of 2:53 p.m. London time.

Emergency Swap Lines

Central banks said today that emergency currency-swap lines
established during the global financial crisis will be made
permanent, providing backstops to safeguard against future
turbulence.

In Asia, the Bank of Japan stuck with its campaign of
unprecedented monetary easing, intended to jolt the nation out
of a 15-year deflationary malaise. Governor Haruhiko Kuroda’s
board maintained a pledge to expand the monetary base by 60
trillion to 70 trillion yen ($711 billion) a year.

Back in the euro area, the labor-market report showed that
the jobless rate in August was revised to 12.2 percent from 12
percent previously. The jobless rate among those under the age
of 25 was 24.1 percent in September.

In Spain, the total unemployment rate held at 26.6 percent
in September, while Italy’s joblessness climbed to 12.5 percent.
Germany’s jobless rate fell to 5.2 percent.

Energy Prices

The inflation statistics showed that energy prices dropped
an annual 1.7 percent in October after a 0.9 percent decline the
previous month. Prices of food, alcohol and tobacco rose 1.9
percent, slowing from a 2.6 percent pace in September, while the
cost of services increased 1.2 percent.

The core inflation rate dropped to 0.8 percent in October
from 1 percent, also surprising economists, who had forecast
that it would remain unchanged.

“With energy-price base effects becoming less favorable in
the coming months and some indirect tax increases in the
pipeline early next year, the falling streak in inflation is
probably nearly over,” said Martin van Vliet, an economist at
ING Bank NV in Amsterdam. “However, euro-zone headline
inflation is still set to remain well below the ECB’s target in
the foreseeable future.”

Today’s inflation data are an estimate and the statistics
office will release final figures for October on Nov. 15.